Mortgage prequalification: What is it and how does it work?

Getting prequalified for a mortgage is an early, low-stakes step that gives you a fast estimate of how much house you can afford without hurting your credit score. By sharing basic details about your income, debts, and down payment, you’ll receive a prequalification letter to help set a realistic budget and focus your home search. Learn how mortgage prequalification works, how it differs from preapproval, and what to do next.

Key takeaways:

• A mortgage prequalification is an estimate of how much you could borrow.
• The estimate is based on self-reported information about your income, assets, debts, and anticipated down payment.
• A prequalification letter helps you set a budget early in the home buying process, but lacks the buying power of a mortgage preapproval.

How does mortgage prequalification work?

Mortgage prequalification is a lender's rough estimate of how much you can borrow to buy a home.

The lender bases its estimate on basic financial information you provide, such as your income, current debt payments, and expected down payment amount. Prequalification is an informal process, and the lender usually won't verify your information beyond ordering a soft credit check.

You'll receive a prequalification letter from the lender estimating how much you can borrow. Prequalification is an estimate, not a guarantee of loan approval.

Prequalification is useful at the start of the home buying process, helping you set expectations for how much you can borrow, what kind of home you can afford, and what to look for as you're home hunting. If you prequalify with multiple lenders, you may receive different prequalification amounts.

You also can use the home affordability calculator from Rocket Mortgage to get an idea of how much home you can afford.

What’s the difference between prequalification and preapproval?

Prequalification and preapproval sound similar, but they're not the same.

In general, mortgage preapproval is a more formal process in which the lender reviews and verifies your information, whereas prequalification relies on self-reported information.

For example, you self-report your income during prequalification, but preapproval requires pay stubs or other documentation. Additionally, prequalification uses a soft credit pull, while preapproval uses a hard pull to confirm your credit score.

If you get preapproved for a loan, you can feel more confident that the terms offered are closer to what you’ll get when you apply for the loan.

A preapproval letter also shows agents and sellers that you’re ready to buy, making your offers more appealing.

You can take it a step further and get a Verified Approval Letter (VAL) from a lender like Rocket Mortgage.¹ A VAL states that you can qualify for a mortgage up to a certain loan amount. During this process, an underwriter reviews your finances, which doesn’t happen with a prequalification or a preapproval letter.

Why is mortgage prequalification important?

Mortgage prequalification is important for buyers who want to know how much they can borrow before they start searching for a home.

It helps you set a realistic budget and makes it easier for your real estate agent to find homes you can afford.

Getting prequalified also can show you where your finances can improve to increase your odds of approval and secure better loan terms.

How to get prequalified for a mortgage

If you’re ready to get prequalified for a loan, these four steps can help simplify the process.

1. Gather your financial information

The more accurate your information, the more accurate your estimate will be. While the exact information your lender will want may vary, you probably need:

• Recent pay stubs
• Recent income tax returns, especially if you own a business or are self-employed.
• Your Social Security number
• A list of your debts, including credit cards, car payments, and student loans. You may need the total amount of debt and the monthly minimum payment amounts.
• Information about your financial assets, such as a savings account, retirement savings, and investments.
• Any bankruptcies, judgments, or other legal actions against you in the past several years.

2. Choose a lender

Next, choose at least one mortgage lender to prequalify with. Each lender you apply with may prequalify you for a different amount.

One way to find potential lenders is to ask friends and family. Your real estate agent likely has recommendations for lenders that offer competitive mortgage rates and are easy to work with.

Be sure to ask mortgage lenders about which loans they offer and their requirements.

3. Submit the prequalification form

Once you’ve decided on a few lenders and gathered your information, you can submit the prequalification form.

The prequalification form will vary by lender, but you'll generally provide your financial information, loan type, and down payment amount.

It’s common for some lenders to prequalify you right away, while others may take a day or two.

4. Receive your prequalification letter

Depending on the lender, you may get your prequalification letter right away, or it may take a few days.

If you get prequalified with a few lenders, compare the estimates to see how much they vary. While your prequalification technically doesn't expire, if your financial situation changes, it may no longer be valid. Financial changes also can affect the loan type you could qualify for.

How to increase your chances of prequalification

While mortgage prequalification isn’t mortgage approval, it can give you a rough idea of how much you may be approved for.

If you prequalify for less than you expected, here are some strategies to increase how much you can borrow.

• Improve your credit. One of the best things that you can do to increase your prequalification amount is to improve your credit. Having great or excellent credit often allows you to get a loan with a lower interest rate or better loan terms.
• Reduce your debts. Lenders have guidelines they must follow regarding how much debt you can have and still qualify for a mortgage. If you have too much debt, it may limit the amount that you can be prequalified for.
• Save for a larger down payment. A larger down payment doesn’t necessarily affect your prequalification amount, but it can reduce the amount you need to borrow.
• Earn more money. Lenders want to be sure you can afford the monthly payment, so making more money will increase the amount lenders will let you borrow.

What to do after getting prequalified for a mortgage

After you receive your prequalification letter and read through the estimated loan terms, here are some next steps you can take:

• Finalize your home budget. While a prequalification provides an estimate of what you may be approved for, it can help you create a budget. Since they’re not a true representation of what you will be approved for, it can be a good idea to use the prequalification amount as the top end of your budget.
• Find the right real estate agent. If you already have a real estate agent, you can skip this step, but if you haven’t, now is the time to find a real estate agent. An experienced agent helps you find homes in your budget, make an offer, and negotiate a deal that works for you.
• Pursue a preapproval. Many sellers want to see a preapproval with your offer, as it shows you're a serious buyer. A preapproval letter will give you a clearer idea of how much you can borrow, potential loan terms, and interest rates.
• Strategically shop for homes. With a budget in mind, you can begin narrowing down your search to homes that you can comfortably afford.
• Explore first-time home buyer mortgage programs. States and cities often have first-time home buyer programs that make homeownership more affordable. Many programs offer down payment or closing cost assistance, although there are countless options available.
• Avoid major financial changes. Big changes to your financial situation can affect your ability to get a mortgage. Avoid making major purchases and opening new lines of credit while you're buying a home.

FAQ

Here are answers to common questions about mortgage prequalification.

What if I don’t prequalify for the mortgage amount I need?

If you don’t prequalify for the amount you expected, don’t panic. Since prequalification is low stakes, it gives you the chance to improve your credit score, pay down debts, and increase your income. These factors can help prepare you for your next prequalification or preapproval.

How many mortgage lenders should I prequalify with?

The Consumer Financial Protection Bureau (CFPB) recommends that you contact at least three lenders. Since prequalification doesn’t affect your credit score, you can get a prequalification letter from multiple lenders before choosing a lender.

How long does a mortgage prequalification last?

While a mortgage prequalification technically doesn’t expire the way mortgage preapproval does, most last anywhere from 60 – 90 days.

Are there any downsides to mortgage prequalification?

Prequalification is not as strong as preapproval. A mortgage prequalification looks at the information you provide, while a mortgage preapproval takes a more in-depth look at your financial situation with additional documentation. Many sellers want a preapproval when you submit an offer, as it shows a clearer picture of what you can afford.

The bottom line: Mortgage prequalification helps you budget for a home

Prequalifying for a mortgage is an informal process in which you provide a lender with your financial information and receive a rough estimate of how much you can borrow. Getting prequalified helps you set a budget when shopping for a home. Once you're ready to begin seriously buying a home, you can pursue getting preapproved for a loan.

If you’re ready to buy a home, you can explore your borrowing options today with Rocket Mortgage.

¹ Participation in the Verified Approval program is based on an underwriter's comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage's control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.